Chapter 11 vs. Chapter 7
First, if you expect your business to remain viable in the long-term but need relief from creditors now, a new option under Chapter 11 may be appropriate. This path allows a firm to remain operational and, generally speaking, renegotiate its debt and repay over a set amount of time, as well as take other steps to return to profitability.
Called Subchapter 5, this route — it took effect in February — is for businesses with debt below a certain threshold (with some limitations). From now through next March, that cap is about $7.5 million. (Recently passed legislation raised it from $2.7 million for one year.)
This option is intended to make the bankruptcy process faster and less expensive for small businesses. It eliminates some costs and paperwork requirements, as well as allowing owners to retain their interest in the business, among other differences from typical Chapter 11 cases.
Nevertheless, a Subchapter 5 filing still comes with a hefty price tag: about $10,000 to $50,000, depending on the complexity of the case, said Stuart Gold, managing partner at Gold, Lange & Majoros in Southfield, Michigan. The filing fee itself is $1,717.
Before you get to the point of filing, however, you should consult with a bankruptcy professional to ascertain if that’s the best choice.
“You want to make sure you have a viable business that can survive and is in need of relief to warrant the fees,” Gold said.
Meanwhile, a Chapter 7 bankruptcy involves a trustee liquidating the filer’s assets and trying to pay off creditors.
While this is a common route for individuals, it may not be suitable for a business because it won’t erase the firm’s debt, said Cara O’Neill, a legal editor for Nolo.com and bankruptcy and litigation attorney in Roseville, California.
“Most business owners are concerned primarily with getting out from under their liability for business debt, and that’s better done using a personal Chapter 7 or Chapter 13 filing,” O’Neill said.
To read full article click here.